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Economics Lecture Three (view source)
Revision as of 23:12, September 14, 2009
, 23:12, September 14, 2009→Price Controls: better
==Price Controls==
==Price Controls==
So far we have been talking about economic exchanges in the absence of government controls. But the government does interfere in many ways in our economy. America enjoys more free enterprise than any other large country, but we are still heavily regulated.
So far we have been talking about economic exchanges in the free market, in the absence of government controls. But the government does interfere in many ways in our economy. America enjoys more free enterprise than any other large country, but our government does regulate many types of markets, and even controls some of them.
During World War II, the government imposed controls to prevent companies from raising prices during the war. The needs of our military for goods increased demand that would ordinarily shift the demand curve and increase prices. But the government prohibited this from happening by limiting price increases.
During World War II, the government imposed controls to prevent companies from raising prices during the war. The needs of our military for goods increased demand that would ordinarily shift the demand curve and increase prices. But the government prohibited this from happening by limiting price increases. "Price controls" are limits on the prices at which certain goods can be sold.
Controls on prices (and also wages) were also imposed to control inflation in the early 1970s. A war in the Middle East, and assistance in that war by the United States of Israel, caused the Arab nations to reduce their supply of oil to us. That created gasoline shortages and increased energy costs, which then drove up inflation. Price controls were designed to limit the increases.
Controls on prices (and also wages) were also imposed to control inflation (increases in all prices) in the early 1970s. A war in the Middle East, and assistance in that war by the United States of Israel, caused the Arab nations to reduce their supply of oil to us. That created gasoline shortages and increased energy costs, which then drove up inflation. Price controls were designed to limit the increases.
<insert graph of price controls>
<insert graph of price controls>
Rent control in New York City is an example of a price control that has terrible effects. The people lucky enough to be a rent controlled apartment pay much less than the market rate, and never move out. New housing is not created as quickly as it should be, because landlords are not sure they will be able to charge the market rate. Earlier this year one commentator said this about New York City's rent control:<ref>[http://meganmcardle.theatlantic.com/archives/2009/02/out_of_control.php Megan McArdle, ''The Atlantic'']</ref>
:[H]ere's one of the things that basically [every economist], left to right, agrees on: rent control is the surest way to destroy a city's housing stock short of aerial bombing, and one of the major culprits behind New York's painfully low vacancy rate. Rent control allows some people to stay in artificially cheap apartments, but only by forcing the people who would have rented them into some other, less desirable place. Those people bid up the price of the uncontrolled housing, so that you essentially end up with two housing markets, one with rents above the natural market price, and one with rents below it. There is no way to ensure that the deserving middle class folks you want to see stay in the city end up in the latter, and indeed, many of the owners of rent stabilized apartments were notorious for finding the richest tenants they could. Rich tenants rarely get behind on the rent, and move sooner than people who can just barely afford their below-market place. ... And no one wants to build any new housing except luxury units which will not be controlled. Then everyone wonders how come there are no houses for middle income people in [New York City].
== Minimum Wage ==
== Minimum Wage ==